December, 2017 –The retail industry in the U.S. is undergoing disruption which is bringing about a change in how retailers operate. Things are transforming faster than ever when it comes to shopping on-line, the use of mobile purchasing, new forms of payments, and the degree to which consumers are expecting convenience while shopping. According to a survey by PwC, over 32% of consumers buy products at least monthly via their smartphones. Consequently, without an iota of doubt, the retail industry ecosystem is being forced to evolve with the dynamic needs of the customers.
AND, THE SPOTLIGHT IS NOW ON TAX
The most recent disruption in the retail industry is the proposed tax-reform plan by President Donald Trump that offers sweeping cuts in individual and corporate tax rates. The retail industry is expected to be majorly disrupted by this reform.
Presently, the United States has the highest corporate taxes among the OECD countries. According to a 2016 report by Goldman Sachs, major retailers are among the top tax paying companies in the US. The table below depicts some of the top tax-paying retailers include apparel companies Gap (GPS), Under Armour (UAA) and department store Nordstrom (JWN).
SO, WHAT IS CHANGING IN THE NEW TAX REFORM?
One of the centerpieces of the proposal is the reduction in the corporate tax rate from the current 35% to around 20%. Other aspects of the tax reform bill, including doubling the standard deduction for consumers, could result in higher discretionary income for individuals, which, in turn, could spur consumer demand.
IMPACT OF TAX REFORMS ON RETAILERS
THE POSITIVE SIDE OF THE COIN
Most retail giants and even small and medium retailers feel that the reduction in the corporate taxes will help their business. Lowering the corporate tax rate would allow these companies to make the best decisions based on the investment opportunity from the surplus income that they otherwise had to return as a part of corporate tax. The reduction in corporate tax will also be a boon for small and medium retailers who usually operate with extremely thin margins.
Though the tax reform seems profitable for retailers, there may be some underlying down sides to its implementation
HOW CAN THE TAX REFORM ADVERSELY AFFECT RETAILERS?
- 1. Adverse Effect on Financial Reporting
- 2. Tax Rate Ramifications
A one-stop shop to all the challenges retailers face with this tax reform is Quatrro. Whether the retailers face unmanageable financial reporting situations or need guidance on rate and tax ramifications, Quatrro offers cost-effective financial and accounting outsourcing solutions, technical support services and a range of affordable business support services for small and mid-sized retailers across the retail industry. Quatrro provides a choice of outsourcing model that works within the retailer’s budget and corporate culture. The finance and accounting services include generating profit and loss statements, balance sheet, cash flow statement, inter-company accounting, fixed asset accounting, corporate consolidation reporting, budget comparison reports, and trend analysis reports.
Quatrro’s services enables its retail clients to experience the following benefits:
- Timely, high-quality management information which helps retailers make proactive, strategic decisions
- Compliance with ever-changing accounting regulations in the industry
- Analytics and benchmarking which allow the retailer to predict disruption ahead of time
- Providing a competitive edge to the retailers in the marketplace to support their improved performance on almost every metric that matters
If the recent happenings regarding the tax reform has worried you about the finance and accounting processes of your retail business, let Quatrro help share the burden of your finance and accounting department to empower you to scale your business. If you would like to find exactly how Quatrro can help your business, visit www.quatrrobss.com
( 1 OECD: The Organization for Economic Co-operation and Development is an intergovernmental economic organization with 35 member countries, founded in 1960 to stimulate economic progress and world trade. The official founding members are Austria, Belgium, Canada, Denmark, France, West Germany, Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK, US.)